Advanced Search
MyIDEAS: Login

The determinants of foreign direct investments: Regional vs. National characteristics

Contents:

Author Info

  • Laura Resmini

    ()

  • Laura Casi

Abstract

This study aims at identifying the main determinants of Foreign Direct Investment (FDI) into the European regions. The theory of the determinants of FDI deals with the question on why firms become multinationals. Partial equilibrium studies suggest that in so doing firms try to internalize trade costs and externalities from firms specific assets as well as to take advantages from location characteristics. General equilibrium models turn the attention to motivations for investing abroad, distinguishing between market seeking and efficiency seeking FDI. While the former are more interested in local markets, the latter are looking for lower-cost inputs and strategic assets that help them to become not only more efficient but also more competitive. According to this theoretical background, the most important determinants of FDI are market size and potential, factor costs, agglomeration externalities, labour skills, trade barriers and incentives. However, the empirical literature is mainly based on evidence drawn from data at industry or country level. Therefore, we need to investigate whether and to what extent those variables maintain their capacity of attraction at regional level, too. At this purpose, we argue that, at regional level, the capacity to attract FDI is the result, on the one hand, of the relative performance of a region within the country it belongs to, and, on the other hand, of the relative performance of the country it belongs to in Europe. In order to achieve our research objectives, we use original data on the number of foreign investments over the 2005-07 period disaggregated by regions of the EU27 and by sectors. Our empirical analysis is divided into two interrelated parts. We first perform a detailed analysis of the location determinants of foreign investments at both regional and country level. Then, we try to understand whether and what extent each region’s capacity to attract FDI is enhanced or hampered by the performance of the country it belongs to by interacted regional and country variables. Once identified the “national” and the “regional” components of factors able to attract FDI, more effective FDI promotion policies can be implemented at national, regional and sectoral levels.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-sre.wu.ac.at/ersa/ersaconfs/ersa10/ERSA2010finalpaper466.pdf
Download Restriction: no

Bibliographic Info

Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa10p466.

as in new window
Length:
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:wiw:wiwrsa:ersa10p466

Contact details of provider:
Postal: Welthandelsplatz 1, 1020 Vienna, Austria
Web page: http://www.ersa.org

Related research

Keywords:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Head, Charles Keith & Mayer, Thierry, 2002. "Market Potential and the Location of Japanese Investment in the European Union," CEPR Discussion Papers 3455, C.E.P.R. Discussion Papers.
  2. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June.
  3. Donald R. Davis & David E. Weinstein, 1997. "Economic Geography and Regional Production Structure: An Empirical Investigation," Harvard Institute of Economic Research Working Papers 1802, Harvard - Institute of Economic Research.
  4. Fabienne Boudier-Bensebaa, 2005. "Agglomeration economies and location choice: "Foreign direct investment in Hungary" -super-1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(4), pages 605-628, October.
  5. Devereux, Michael P & Griffith, Rachel, 2002. "Evaluating Tax Policy for Location Decisions," CEPR Discussion Papers 3247, C.E.P.R. Discussion Papers.
  6. Andrew Mold, 2003. "The Impact of the Single Market Programme on the Locational Determinants of US Manufacturing Affiliates: An Econometric Analysis," Journal of Common Market Studies, Wiley Blackwell, vol. 41(1), pages 37-62, 03.
  7. Irving B. Kravis & Robert E. Lipsey, 1982. "The Location of Overseas Production and Production for Export by U.S. Multinational Firms," NBER Working Papers 0482, National Bureau of Economic Research, Inc.
  8. Guimaraes, Paulo & Figueiredo, Octavio & Woodward, Douglas, 2000. "Agglomeration and the Location of Foreign Direct Investment in Portugal," Journal of Urban Economics, Elsevier, vol. 47(1), pages 115-135, January.
  9. Davis, Donald R. & Weinstein, David E., 2003. "Market access, economic geography and comparative advantage: an empirical test," Journal of International Economics, Elsevier, vol. 59(1), pages 1-23, January.
  10. Shatz, Howard J. & Venables, Anthony J., 2000. "The geography of international investment," Policy Research Working Paper Series 2338, The World Bank.
  11. Lucas, Robert E. B., 1993. "On the determinants of direct foreign investment: Evidence from East and Southeast Asia," World Development, Elsevier, vol. 21(3), pages 391-406, March.
  12. Fazia Pusterla & Laura Resmini, 2005. "Where do foreign firms locate in transition Countries? An empirical investigation," ISLA Working Papers 20, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy, revised Sep 2005.
  13. John H Dunning, 2009. "Location and the multinational enterprise: A neglected factor?," Journal of International Business Studies, Palgrave Macmillan, vol. 40(1), pages 5-19, January.
  14. Romer, Paul, 1993. "Idea gaps and object gaps in economic development," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 543-573, December.
  15. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
  16. Schneider, Friedrich & Frey, Bruno S., 1985. "Economic and political determinants of foreign direct investment," World Development, Elsevier, vol. 13(2), pages 161-175, February.
  17. Barrell, Ray & Pain, Nigel, 1999. "Domestic institutions, agglomerations and foreign direct investment in Europe," European Economic Review, Elsevier, vol. 43(4-6), pages 925-934, April.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa10p466. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.